Set Off and Counterclaim

When two parties have a claim, each against the other, for a monetary amount, one may set-off his obligation to pay against his right to receive from the other.  A cross-claim may be raised as a defence to the other claim. Where one party has a claim of any kind against the other and brings an action to enforce that claim and the other has a cross-claim of any kind which he is entitled by law to raise and have dealt with in the same action, he has a right to counterclaim in the proceedings.

Set-off requires a monetary claim.  Counterclaims may be for amounts to be quantified by the courts,  for example, damages for breach of contract.  The only limitation in respect of counterclaims is that they must be capable of being conveniently tried in one legal action.  In principle, a wide range of claims may potentially be subject to counterclaim, if they satisfy the criteria for being heard in a single action.

Set-off is a defence and is a full answer to the other party’s claim.  A counterclaim is not a defence as such, as the counterclaim must itself be proved in an independent claim.  It is possible that a counterclaim may also constitute a set-off. This should be set out in the relevant pleadings and defence.

Payment is satisfaction of a claim by the payment of money. Where payment is made, the payer may raise a defence of accord and satisfaction namely, agreement and satisfaction of that agreement.  Set-off does not involve payment in relation to the element set off.  In the case of a set-off, the other claim is admitted and the set-off is set up as a defence to excuse payment and rebut the entitlement of the other party. The counter obligation is extinguished to the extent of the set-off.

Common Law and Equity

Set-off was more narrowly available at common law. The courts of equity recognised the wider defence of  equitable set-off. The right of set-off arising from a separate transaction in reduction of the  other party’ claim was allowed only by the courts of equity. The courts of equity could  restrain a claimant  in an action at common law from proceeding or obtaining leave to enforce, where there was an equity affecting the legal demand.

A common-law, set-off was allowed where both debts were ascertained at the time of the claim.  Accordingly, no legal set-off could be put against a right to claim damages or vice versa.  Since the Supreme Court of Judicature Acts, and the merger of the courts of law and equity, the right of equitable set-off which was available in the courts of equity are now available in all courts.

A non-liquidated claim may be set-off against a liquidated claim, provided they are linked in such a way as to give an equity in favour of the party seeking to rely on it.   A liquidated claim may not be offset against an unliquidated claim until the latter is ascertained. The counterclaim and set-off must be allowed by the relevant rules of court.  A defendant may elect to claim set-off or not. Where set-off is successfully claimed, a judgment for the balance may be given to the party for the excess.

Contractual Extension

A party may agree not to exercise a right of set-off.  He may be estopped from exercising a right of set-off by his conduct.  Accordingly, if a person admits an account and acquiesces in it for prolonged period, he may be estopped on general principles, from claiming a right of set-off where he has led the other party to believe the  position existed and the other party had acted to his detriment.

A right of set-off may be created or extended by agreement.  It may be allowed by course of dealing or custom, of which the claimant is aware.  A set-off by agreement requires contractual undertaking to set-off. Such agreements are commonly required by lending banks.


At common law, the debt had to exist at the time of commencement of the action, at the date of pleading and up to the date of trial and until ultimate satisfaction.  Under modern court rules, a defendant may raise a defence on any ground which has arisen before or after the action was brought. This has been held to include set-off.

Debts accruing prior to winding up may be set-off against each other.  However, debts accruing after winding up may not be set-off against debts due from the company before winding up.  The same principle applies to personal bankruptcy.

Differing Capacities

A set-off must be maintained by parties in their own right.  A party may not set-off as trustee, a sum which he is owed as trustee against his personal obligation.  Some claims and rights are by their terms ineligible for set-off by statute.  This is the case, for example in the case of public pensions.

A joint debt and a several debt may not be set-off against each other. If two defendants are sued for a joint debt, they may not set-off a debt due to one of them separately.  If a defendant is sued for a separate debt, he cannot set-off a debt due to himself and another jointly.  However, a debt due from the claimant severally as well as jointly (which is commonly the case) may be set-off.

Where a customer has a joint account and an account in his own name, set-off of the two accounts is only permitted by the customer is beneficially entitled to the joint account, such that a court of equity would compel a transfer of the account into his sole name.

Where a claim is made by a principal who has been disclosed, debts due to the agent may not be set-off, unless the agent has so agreed.  A defendant sued by a non-disclosed principal may set-off debts due from the agent in respect of the transaction in which the agent acted in his own name as if a principal, but in fact acted as agent.  Where the defendant knows that the agent is in fact an agent, without knowing the identity of the principal, he must enquire and cannot set-off any claim by the principal against a debt due from the agent.

A debtor may set-off against an assignee of a debt or other chose in action, anything he could have set-off against the assignor.  The debt or obligation must accrue before notice of the assignment.

A banker may set-off sums due on one account against another at law.  However, if he knows the accounts to be trust accounts, he may not do so.  He may not set-off accounts if they are not  immediately due.  A customer may set-off a balance due to him from a bank against a debt due unless he has had notice that the debt due from him has been assigned to a third party.

A claim by an executor arising after the date of death may not be set off against a debt due by the deceased during his lifetime and vice versa.


The same general principles apply in relation to claims by partners.  Where a defendant is sued by a firm, he may not set-off a claim due from a partner individually, unless the partners have allowed the defendant to deal with partner as a sole trader, such that the defendant was thereby induced to the give credit to the apparent ole trader.

If an individual partner has agreed to allow a set-off, it may be binding on the firm, provided it is within the scope of his authority as a partner.  However, if the other party knows that others have an interest in the debt claimed for, he is not allowed to set up the claim against the individual partner without the authority of the others.

A defendant who was sued for a debt due by him alone may not set-off a debt due to him and members or other partners or members of his firm.  Debts owed by the firm may not be set-off against claims by partners individually.

A surety who pays a debt on behalf of the principal whom he guarantees is entitled to exoneration.  This he may set-off in a claim against him as guarantor, a debt due from the plaintiff to the principal debtor arising out of the same transaction.


Set-off does not generally apply to rent. Tenants may not set-off against rent, claims against a landlord.  They may be the subject of a counterclaim in an appropriate case.  There were certain exceptions to this principle by statute and at common law.

Under Landlord and Tenant legislation, there is a right of set off in respect of certain failures to repair. At common law, where a landlord is under an obligation to repair by reason of sudden accident, and the tenant repairs himself in order to avoid further damage, he may set-off the cost against rent.  Similarly, where the tenant has paid sum due from the landlord to prevent interference with his own occupation, he may set-off.

Payment of wages legislation restricts set-off of wages. Set-off in respect of losses, damage etc. is allowed in very limited circumstances and subject to conditions, consent and controls. See generally the section on payment of wages.


A counterclaim is available if the rules of court or other procedural rules of the relevant court allow it  to be brought in the same legal proceedings.  The Circuit Court and District Court have more restricted jurisdiction than the High Court.  They generally have jurisdiction at law and in equity to determine counterclaims arising in the same proceedings.  A wider range of counterclaim may be allowed than claims in respect of which they would have original jurisdiction. However, they may not grant relief in excess of their jurisdiction limit.

Generally, a counter-claim may be brought, where it may be brought as an action in its own right. The defendant in counterclaiming may seek declaration, injunction receive a specific performance.   It may be a monetary claim or a claim for an unliquidated or an ascertained sum.  It need not necessarily be related to the subject matter of the proceedings. The principle criteria is that he matters may conveniently tried together. The court may have significant discretion, in this regard.

A counterclaim may not be set up, if would not be available to the defendant if it sued in an independent action without joinder of other plaintiffsThe court will not add further defendants to enable a counterclaim to be raised unless they may be properly added in respect of the relief claimed by the claimant. One of several co-defendants may set up a counterclaim in respect of a several claim, to which he alone is entitled.

A counterclaim may arise in respect of something which has accrued since the action commenced.  The defendant may be allowed to amend his defence set it up.  A counterclaim obliges the plaintiff and any third parties against whom it is made, to be defendants in respect of the counterclaim.

Counterclaim and Third Partie

A counterclaim must be against the claimant either alone or with another as defendants. It may not be set up unless the claimant or one or more other persons can be added as parties.  A defendant who has a claim against the claimant or the claimant together with other persons who are not claimants, may join them as defendants subject to the below restriction.  Where there are several co-claimants, the counterclaim may be brought against all of them or some only.  The defendant may allege separate claims against each or any of them.

A counterclaim may not be brought against a claimant personally and in a representative capacity, unless the rules of courts would allow them to be joined in an independent action.  A counterclaim may be brought against a claimant in a capacity different to which the claim has been made.

The defendant may set up a counterclaim against the claimant and another party even if the third party could not have been joined as a co-plaintiff provided the claim alleged is a claim available against the plaintiff and the third-party jointly and not against the third-party in the alternative and the subject matter relates to or is connected with the original subject matter or cause.

A counterclaim may be set up against the counterclaim provided it arises at the same time and out of the same transaction and provided it is set up as protection against the defendant’s counterclaim.  Otherwise, he must amend his claim.  A person who is not party to the action but is served with a counterclaim, may not raise a counterclaim against the original defendant only or against the original defendant together with the plaintiff.

A claimant or other person against whom a counterclaim is set up may by leave issue a third party notice against a third party from whom he claims contribution or indemnity in relation to the subject matter of the counterclaim.  A person against whom a third-party notice is issued may counterclaim against the defendant, but not the plaintiff.

Judgment and Costs

Where a defendant establishes a counterclaim equal to or greater than the plaintiff’s claim, he is entitled to a judgment for the balance.  If both the claim and the counterclaim fail, each obtains judgment.  The same principle applies to a counterclaim which may be made in respect of the balance due.

Where a claimant obtains judgment on his claim on the defendant obtains judgment for his on his counterclaim, there are two judgments.  However, execution may not issue for more than the balance.

Generally, costs follow the result.  Costs are at the discretion of the court. Because the issues are connected, the court’s jurisdiction may be tailored to the circumstances.

Where both plaintiff and defendant succeed on the claim and the counterclaim respectively and it is not subject to set-off, each will generally have the cost of his claim.  Where the defendant succeeds in a set-off which exceeds the claim, he is, in the absence of circumstances on which the court may exercise his discretion to the contrary entitled to judgment with cost and the cost of the counterclaim.  If he succeeds in set-off for less than the plaintiffs claim, he has succeeded proportionately.


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